How To: Exchange Choice

Choosing an exchange can make the difference between losing out or winning big, for weathered and new investors alike. Read on to find out what you should be looking out for.

Bitfinex, the exchange platform based in Hong Kong, has issued a press release stating they will not be able to accept any more verification requests from U.S.-based customers, in essence pulling out of the U.S. market. The reasons they gave for this unsurprising move include the ever-increasing difficulties banking and with U.S. legislation passed. And the backlog of U.S. customers waiting for for verification. Lastly, the fact that only a small section of their revenue actually originates from the U.S. All in all, it makes business sense for Bitfinex, but it does leave current and future U.S. investors out in the rain.

What to look for in an exchange

As you can see, the location of the exchange is important when deciding where to create your wallet, as rules and regulations differ on a country-by-country basis. Most countries do not have any legislation at all, while others are quite restrictive and outright ban cryptocurrencies. Also keep in mind that although most legislation is written for bitcoin, it by extension also is valid for alternate cryptocurrencies, as seen of late with the SEC decision regarding the DAO token.

Have a look at which coins are on offer on the exchange. Some coins can only be found on selected exchanges, while others have a sizeable offer. A good place to start if you want to trade in multiple alt coins is Livecoin, Kraken, and Poloniex. There are other, smaller exchanges that offer specific alt coins that are not listed anywhere else, however this is for the more seasoned trader.
Yet the rule of thumb is that most, if not all alt coin exchanges do not support fiat (EUR, USD) to crypto, meaning that you’ll only be able to trade if you already own cryptocoins or bitcoins. Or you will have to buy them at a separate exchange for fiat first. The aforementioned Livecoin and Kraken do support fiat to crypto, as well as for example Coinbase and Bitstamp.

Exchange liquidity and volume

Another thing to look for is trading volume, or liquidity. Both these terms are used interchangeably but they are not the same thing! However that is something for another how-to.
When an exchange posts their order book online (the selling and buying of coins on the exchange right now), you can judge how many people are using the exchange, and by extension, how much liquidity an exchange has. A higher trader volume usually means higher liquidity, which is usually a good thing for casual or novice traders.

Lastly, but maybe the most important one, is the fee the exchange charges you per transaction. A low or even non-existent fee can make the difference when minimizing your losses on a losing coin. Or increase your gains when you sell a coin on the high. Fees differ from exchange to exchange, AND can change over time. So be sure to be up-to-date on the current fees of the exchanges you are using.

Disclaimer: the author does not promote any of the exchanges mentioned in the article as better than others. Do your own research and pick wisely!